Before taking out loans or applying for financial assistance, operators are advised to seek professional advice from a qualified financial expert.
The effect of Covid-19 has been a serious challenge for those working in the hospitality and leisure industries.
Cash flow is now a major concern during the coming months as we wait for further information on when things will return to some normality.
There has been a lot of information released over the past week and many business owners have been left scratching their heads.
Although information is coming out, the detail is often lacking.
In this guide, I will cover the options available to those in the pub industry, breaking down the grants, Government loan schemes and traditional funding routes.
Government grants and loans
The Prime Minister’s address on the 16 March was a hammer-blow for the industry and then on 17 March offered some relief, although the details were less clear. Some further information has been offered at Gov.uk.
These can be broken down into three schemes, two of which are grants and one a loan.
Unlike a loan, grants are yours to keep and do not have to be repaid.
Small business grant funding
Small business grant funding is a scheme designed for businesses eligible for Small Business Rates Relief (SBRR).
These businesses are entitled to a one-off grant of £10,000, which is issued through a local authority.
Further guidance is to be issued by the local authority, although it has been confirmed there is no need to apply.
Instead, the local authority will contact businesses and make the payment.
This is expected to happen in early April.
Grants for larger businesses
Larger businesses won’t generally qualify for SBRR, or the above grant.
However, there is a larger grant of £25,000 available to businesses with a rateable value between £15,000 and £51,000, in the retail, hospitality and leisure industries.
The grant will again be managed through local authorities, and details will be published by them on 20 March.
You can find your local councils website on the Government’s website.
Coronavirus Business Interruption Loan Scheme
For most pubs, a grant will be a welcome addition, but may not be enough to manage cash flow on its own.
In this situation, the Government has launched the Coronavirus Business Interruption Loan Scheme.
Through this, funding has been made available to UK business owners, backed by a Government guarantee of 80% of each loan.
The scheme is delivered through the British Business Bank and will be launched next week.
This funding will be available through loans and overdrafts, and up to £5m could be available.
To make things more manageable in the short term, the Government will pay the first six months’ interest on these facilities.
Traditional lending options
On top of the support, the commercial finance market is still active, although some lenders have tightened their criteria.
This market can still provide valuable funding to pubs, with some products having more relaxed criteria than others.
Unsecured business loans
These loans are available right now to business owners through banks, specialist business loan lenders and crowdfunding platforms.
Some lenders have restricted borrowing for pubs, although there are still options out there.
As some lenders aren’t currently lending to pubs, the best approach is to speak to a fee-free broker, who will be able to tell you your options quickly.
I recommend that even if you’re happy to pay a fee for a broker’s service, it should be on completion, with no money changing hands up front.
Unsecured business loans are available from £5,000 to £500,000 with rates depending on the perceived strength of your business and credit history.
Loans can usually be taken over six and 60 months.
Funding can usually be provided between five and seven days.
Secured business loans
Secured business loan lenders may have more relaxed criteria than unsecured lenders.
This is because the lender takes a charge over property as security for the loan.
The property offered can be your pub, your home, or even investment property.
Loan sizes usually start at £26,000 with no maximum and terms can be offered up to 25 years.
Business revolving credit facilities
The best-known revolving credit facility is the bank overdraft, although some lenders do offer stand-alone facilities.
Unlike loans, they don’t have a regular monthly repayment, just a set term, by which date they must be repaid.
Underwriting will be stricter due to the current economic climate, but there are still lenders out there supporting pubs.
Your best chance of success with this type of facility will usually be through your own bank.
If they aren’t able to help, there are independent lenders, who may well support your business, although they may charge a slightly higher interest rate.
These products are still on offer and can be completed very quickly, usually in two to five days.
If you own your pub, you may be able to raise funds by remortgaging it.
Pub owners can usually borrow up to 70% of the vacant possession value of their property over a term of five to 20 years.
Low rates are on offer, especially with the recent Bank of England base rate reductions, meaning rates of 3% or less are common.
In addition, borrowing can often be taken on an interest-only basis, keeping the monthly payments low.
Although commercial mortgages can be a great option to raise large amounts of money and secure things for the future, the application process is very time-consuming.
Applications usually take around eight weeks, meaning they won’t solve an immediate problem.
If you own your pub and funding is proving hard to come by, then bridging finance could help.
Applications are based around the property offered and your planned exit, less concern is given to your trading accounts or credit history.
Bridging loans are designed to cover a short-term funding gap and allow you to borrow for up to 36 months.
The interest can often even be added into the loan, meaning it is paid at the end when you refinance to a longer-term loan when the outlook improves.
These loans are usually available from £25,000 with no maximum and up to 65% of the value of your pub can be released.
Rates for pubs start at 0.65% per month, although you may well pay more at the moment.
The bridging market for pubs is a very niche market, so advice should be taken from a bridging loan broker.
Again, you shouldn’t pay any up-front fees or ‘application fees’ for advice.
These applications can often be completed in seven to 10 days where funds are needed urgently.
Gary Hemming is the commercial lending director at finance firm ABC Lending. He has more than 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans.